PayPal Freezes Diaspora* Account, Disrupts Fundraising Efforts

Diaspora* the open source social network that arose out of privacy issues associated with Facebook last year, recently reached out to the community for donations to sustain the network, which was all well and good until PayPal shutdown their account.

“We’re sorry to say that PayPal has frozen our account, so we’re currently unable to process contributions by credit card,” Diaspora* wrote on its blog. “PayPal is notorious for arbitrary blocking of legitimate donations. We’ll get this sorted out as quickly as we can.”

But until the Diaspora* PayPal acocunt is restored those who wish to donate to the social network can still do so via the company’s Flattr account. Diaspora* raised more than $200K on Kickstarter from 6K+ backers.

Peter Schurman of Diaspora* said that the company found out their account was blocked when they tried to withdraw some of the more than $45K that has been donated. Friday morning, they learned that their withdrawal had been reversed.

“We immediately made several phone calls, and were told they needed additional documentation, such as our certificate of incorporation, which we supplied,” Peter says. “It proves we’re legitimate. Yet this morning they emailed us that our “appeal” was denied and that our money is locked up for 180 days(!). We called them again and were told that they had now blocked all incoming donations.”

Peter says that PayPay has a long history of arbitrarily blocking legitimate transactions.

PayPal famously or infamously — depending on your point of view — blocked donations to WikiLeaks through PayPay in Dec. 2010.

In a statement on the company’s blog, PayPal said WikiLeaks violated the PayPal Acceptable Use Policy, “which states that our payment service cannot be used for any activities that encourage, promote, facilitate or instruct others to engage in illegal activity.”

“It’s hard to know why they did this,” he says. “It could be that they thought it looked suspicious that we’re collecting donations, not selling a product. But there are lots of organizations that collect donations, just like we do. And we’re a fairly well-known, legitimate operation. We’ve been around for more than a year, and been written up in numerous respected publications. And we sent them the documentation they requested.”

Diaspora* chose PayPal as its payment provider because unlike many of their competitors, they do not require that the company sell a physical product.

“We knew Paypal had a reputation for shutting off legitimate donations elsewhere, and several of our users voiced concerns about associating with them, but we figured the important thing was to make things as easy as possible for as many people as possible. Boy, were we wrong to trust PayPal.”

The company is currently working on a solution by using Stripe, a new payment startup, and they expect to have payments back online soon.

“This could not have come at a worst time for us, as Dan, Ilya, and Max are putting out other fires right now with respect to our upcoming beta launch (just 2-3 weeks away!),” Yosem Companys wrote in an internal email.